China's Energy Demands a Plus: OK Fund Manager

As China grows, there is opportunity for natural gas and energy companies in Oklahoma.

So says Steve Shafer, chief investment officer for Covenant Financial Services, which describes itself as "a multi-strategy, multi-asset global macro investment manager."

Shafer sees a bullish scenario for Oklahoma City-based energy companies Chesapeake Energy Corp., Devon Energy Corp. and SandRidge Energy, Inc., based on his recent visit to China in June.

According to a Covenant press release:

"Natural gas is a core element of China's newly-adopted Five Year Plan, and as a result, China more than doubled its imports of natural gas in 2010 over 2009. About half of the imported gas was delivered by pipeline from central Asia and the other half in the form of liquefied natural gas, or LNG. China and other emerging market countries are expected to become buyers of cheaper LNG from Canada when its new LNG export terminal is completed in British Columbia in 2015. If that happens, it could siphon off a significant source of natural gas that normally goes to the U.S., thus driving up domestic natural gas prices that have been depressed by excess supplies in the market. In 2009, Canada provided 87% of all U.S. natural gas imports, representing 12% of U.S. consumption."

"Obviously, this scenario is going to play out over years, not months, but any sustainable upward trend in prices will greatly benefit the U.S. natural gas industry and its large players based in Oklahoma," says Shafer. "While prices have firmed up this year, there is no question that China will have a substantial effect on global natural gas prices in the not-too-distant future."

Natural gas prices fell sharply in the aftermath of the recession, from a high of just over $13 per million British thermal units (BTUs) to a current $4.32. Although electric utilities, manufacturers and auto makers are increasing their use of natural gas, the discovery of shale gas in the last few years created excess supply.

"Today natural gas is effectively a domestic commodity, but because of China's significant growth and consumption, it will soon become a true global commodity in a manner like crude, coal, and copper," says Shafer.

Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio